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  • 1. The Responsive Supply Chain: Managing Market Events in the Consumer Goods Industry July 2007 ~ Underwritten, in Part, by ~
  • 2. The Responsive Supply Chain Page 2 Executive Summary The focus of this benchmark report is on the market events that impact Enterprise Quote demand. There are six key market event categories: rapid changes in “Our business depends a lot on customer affinity, sudden natural disasters, unforeseen contamination and market events like weather, disease, new product innovation, changing economic forces, and expanding drought, etc. When we have international markets. These events cannot be controlled but can be bumper crops, we must manage effectively managed if the right processes and technologies are in place. the sales through the year to utilize the crop and come out with a Ninety-two percent (92%) of 145 Aberdeen Group survey respondents reasonable size of inventory. have indicated that they focus on market responsiveness as a key element of Conversely, when we have small their supply chain processes. crop, we manage with a crop availability that might not The three critical assets that companies can leverage to react to market necessarily meet all our sales events are: inventory, supply chain network, and product. Some ways demand.” by which these assets can be leveraged are: adjusting inventory targets based on demand and order lead times fluctuation; having a flexible supply - Director of Supply Chain at a chain network to be able to source from internal and external sources; SunSweet Growers (a mid size sensing demand changes; and adjusting forecasts based on the changes. food/beverage grower) Best-in-Class Performance Aberdeen used five key performance criteria to distinguish Best-in-Class companies from Industry Average and Laggard organizations. These metrics are an indicator of process level competency for leveraging the three assets outlined above: • Frequency of out-of-stocks (qualitative improvement) • Cash to cash cycle time (absolute value) • Order fill rate (absolute value) • Forecast accuracy at the product family level (absolute values) • Time from product design to production (qualitative improvement) Weights were assigned to the respondents based on their improvements in these metrics and an overall score was identified for each of the respondents. Competitive Maturity Assessment Survey results show that the firms enjoying Best-in-Class performance shared several common characteristics involving various aspects of process, reporting, data, technology, etc. Results show that Best-in-Class companies are: • Three times more likely to be able to track and trace throughout the value chain as compared to all other companies (which include the combination of Industry Average and Laggard) • Twice as likely to be able to make rapid product introduction decisions as compared to all other companies © 2007 Aberdeen Group, Inc. Telephone: 617 723 7890 www.aberdeen.com
  • 3. The Responsive Supply Chain Page 3 • Twice as likely to manage inventory targets based on demand and order lead time fluctuation Required Actions In addition to the specific recommendations in Chapter 3 of this report, to achieve Best-in-Class performance, companies must do the following: • Ensure that a process owner for Sales and Operations Planning (S&OP) is identified and that the key stakeholders who report up to the process owner are identified. • Invest in a supply chain planning and execution tool that has the capabilities for making trade-off decisions to change the supply network (e.g. supplier changes, in/out sourcing). • Invest in an inventory optimization solution preferably with multi- echelon capabilities to be able to manage inventory targets based on demand and order lead time fluctuation. • Include causal events (weather, natural disasters, competitor actions, etc.) into the demand forecast to proactively plan for market events and ensure that the right infrastructure is in place to address the negative effects of these events. © 2007 Aberdeen Group, Inc. Telephone: 617 723 7890 www.aberdeen.com
  • 4. The Responsive Supply Chain Page 4 Table of Contents Executive Summary....................................................................................................... 2 Best-in-Class Performance......................................................................... 2 Competitive Maturity Assessment........................................................... 2 Required Actions ......................................................................................... 3 Chapter One: Benchmarking the Best-in-Class ..................................................... 5 Research Background.................................................................................. 5 Best-in-Class With Respect to Managing Market Events.................... 5 Maturity Class Framework ........................................................................ 6 Best-in-Class PACE Model......................................................................... 6 Chapter Two: Benchmarking Requirements for Success .................................... 9 Competitive Assessment............................................................................ 9 Demand Management Process Characteristics...................................11 Inventory and Supply Network Management Process Characteristics............................................................................................11 Organizational Capabilities ......................................................................13 Performance Characteristics for Managing Market Events ..............14 Chapter Three: Required Actions .........................................................................15 Laggard Steps to Success..........................................................................15 Industry Average Steps to Success.........................................................15 Best-in-Class Steps to Success ................................................................15 Appendix A: Research Methodology.....................................................................17 Appendix B: Related Aberdeen Research............................................................20 Featured Underwriters..............................................................................................21 Figures Figure 1: Demand Management Process Characteristics ..................................11 Figure 2: Inventory and Supply Network Management Process Characteristics .............................................................................................................12 Figure 3: Organizational Capabilities ......................................................................13 Tables Table 1: Companies with Top Performance Earn Best-in-Class Status ........... 6 Table 2: Best-in-Class PACE Framework ................................................................ 7 Table 3: Competitive Framework ...........................................................................10 Table 4: The PACE Framework...............................................................................18 Table 5: The Maturity Framework ..........................................................................19 Table 6: The Relationship Between PACE and the Competitive Framework .........................................................................................................................................19 © 2007 Aberdeen Group, Inc. Telephone: 617 723 7890 www.aberdeen.com
  • 5. The Responsive Supply Chain Page 5 Chapter One: Benchmarking the Best-in-Class Research Background Fast Facts Aberdeen research has found that 50% of consumer industry companies Top assets for managing market report that it takes more than one month to sense changes in demand. This events: is unacceptable in today’s dynamic business environment. √ 62% of respondents Demand fluctuations can result from any number of market events. Market indicate that they leverage inventory events can be defined as uncontrolled incidents (such as weather) as opposed to artificial events (like promotions) that stimulate demand. There √ 71% of respondents are six key market event categories: rapid changes in customer affinity, indicate that they leverage sudden natural disasters, unforeseen contamination and disease, new their supply chain product innovation, changing economic forces, and expanding international network markets. Recent Aberdeen Group research has found that 92% of 145 √ 44% of respondents survey respondents indicated that they focus on market indicate that they leverage responsiveness as a key element of their supply chain processes. their ability to create and implement new The three critical assets that companies can leverage to respond to market products events are: • Inventory: 62% of respondents indicate that they leverage inventory as a key asset. For example, they adjust inventory targets based on demand and order lead time fluctuation, and/or they have the ability to track inventory from the consumer to source in the event of contamination and recall. • Supply chain network: 71% of respondents indicate that they leverage supply chain network as a key asset. For example, they have a flexible supply chain network to be able to source from internal and external sources, and/or they have the right mix of common carrier and dedicated fleet. • Products: 44% of respondents indicate that they leverage their products as a key asset. For example, they have the ability to introduce new products and phase out old products based on changes in customer brand affiliations. Aberdeen will benchmark what Best-in-Class companies are doing with respect to these three assets. Best-in-Class With Respect to Managing Market Events In order to determine what approaches are the most effective, Aberdeen benchmarked 145 respondents from the consumer industries. The capabilities and strategies these companies deploy to leverage the three key assets listed above were then explored. Those companies that best demonstrated the ability to meet the challenge of responding to uncontrolled market events were identified as the Best-in-Class. A detailed demographic report of the respondents can be found in Appendix A. © 2007 Aberdeen Group, Inc. Telephone: 617 723 7890 www.aberdeen.com
  • 6. The Responsive Supply Chain Page 6 Maturity Class Framework Aberdeen used five key performance criteria to distinguish Best-in-Class companies from Industry Average and Laggard organizations. These five metrics are an indicator of the process level competency for leveraging the three assets outlined earlier, namely: inventory, supply chain network, and the ability to implement and create new products: • Frequency of out-of-stocks (qualitative improvement) • Cash to cash cycle times (absolute values) • Order fill rate (absolute values) • Forecast accuracy at the product family level (absolute values) • Time from product design to production (qualitative improvement) Weights were assigned to the respondents based on their improvements in these metrics and an overall score was identified for each of the respondents. Table 1: Companies with Top Performance Earn Best-in-Class Status Definition of Mean Class Performance Maturity Class • % of respondents in category who have gained improvement in frequency of out of stocks within last 2 years: 76% Best-in-Class: • Customer service levels: 94% Top 20% of aggregate • Company average cash conversion cycle: 22 days performance scorers • Average forecast accuracy at the product family level: 79% • % of respondents in category who have gained improvement in time from product design to production within last 2 years: 81% • % of respondents in category who have gained improvement in frequency of out of stocks within last 2 years: 60% Industry Average: • Customer service levels: 82% Middle 50% of • Company average cash conversion cycle: 38 days aggregate performance • Average forecast accuracy at the product family level: 57% scorers • % of respondents in category who have gained improvement in time from product design to production within last 2 years: 51% • % of respondents in category who have gained improvement in frequency of out of stocks within last 2 years: 12% Laggard: • Customer service levels: 77% Bottom 30% of • Company average cash conversion cycle: 71 days aggregate performance • Average forecast accuracy at the product family level: 45% scorers • % of respondents in category who have gained improvement in time from product design to production within last 2 years: 19% Source: Aberdeen Group, July 2007 Best-in-Class PACE Model Based on the input of the respondents, the following is the Best-in-Class PACE framework (Table 2). © 2007 Aberdeen Group, Inc. Telephone: 617 723 7890 www.aberdeen.com
  • 7. The Responsive Supply Chain Page 7 Table 2: Best-in-Class PACE Framework Pressures Actions Capabilities Enablers • Dynamic • Inventory • Ability to manage • POS Consumer management inventory targets based Replenishment Demand strategy – the on demand and order Systems ability to lead times fluctuation • Predictive and effectively position • Ability to make trade- Simulation and execute off decisions to change • Inventory inventory based the supply network (e.g. Optimization on demand and supplier changes, in/out market changes • Demand Signal sourcing) Repository • Supply Network • Process ownership from Management a senior executive for strategy – the the S&OP plan ability to design • Cross functional supply chain product development networks to be team capability - more flexible to marketing, sales, market changes engineering etc Source: Aberdeen Group, July 2007 The top two overall market pressures driving an increased focus on managing market events across the performance framework are: • Dynamic consumer demand and volatile marketplace (54%) • Global supply chains requiring greater demand visibility and longer planning horizon (34%) The top strategic actions that are being deployed to managing these drivers were reported as: • Design the supply chain network to be more flexible to market changes (49%) • Ability to effectively position inventory based on demand and market changes (33%) Where the Best-in-Class differ from other companies are the capabilities that they have in place to effectively implement these solutions. These companies have in place established processes and technologies for being able to make short, mid-term, and long-term adjustments to inventory. These companies are able to increase or decrease their processing capacity on demand and are able to identify alternate supply routes. Aberdeen Insights – Lean Versus Agility Sixty-seven percent (67%) of survey respondents indicated that they have adopted an agile approach to manage market events, while only 37% indicate they are adopting a lean philosophy. This is an encouraging trend. © 2007 Aberdeen Group, Inc. Telephone: 617 723 7890 www.aberdeen.com
  • 8. The Responsive Supply Chain Page 8 Aberdeen Insights – Lean Versus Agility Lean initiatives are often narrowly defined based on a market snapshot rather than an understanding that market conditions continuously change, and market events can occur that can disrupt existing plans. These initiatives result in excessive trimming to take out inventories from the entire supply chain, which make it difficult to react quickly to market events. This can have a number of negative consequences, including: • Loss of customers who turn to more responsive competitors • Margin compression due to marking down of obsolete products • Lack of focus on strategic imperatives as managers perform ad-hoc firefighting and expediting procedures • Ultimate loss of shareholder value © 2007 Aberdeen Group, Inc. Telephone: 617 723 7890 www.aberdeen.com
  • 9. The Responsive Supply Chain Page 9 Chapter Two: Benchmarking Requirements for Success Attaining Best-in-Class status with respect to managing market events Fast Facts effectively is not easy accomplished – it requires a combination of process improvements, people, and organizational alignment with a technology √ Best in Class companies are 3X times more likely backbone that is simultaneously simple as well as scaleable. to be able to track and Case Study: Leveraging Supply Chain Network to Manage Market Events trace throughout the value chain as compared Company: One of the world’s largest global packaging companies based in to all other companies Australia with manufacturing sites in 40 countries employing over 30,000 people. The focus of this case study is on one of the company’s business units √ Best in Class companies are 2X times more likely in North America. to be able to rapid Challenge: The freight journeys for the products take several days and are product introduction influenced by sudden and unexpected variables caused by weather, such as decisions as compared track maintenance or even derailment or closure. Even small delays can cause to all other companies serious damage to profitability. √ Best in Class companies Solution: The company implemented an inventory management solution that are 2X times more able provides dynamic replenishment recommendations based on a real-time view to manage inventory of inventory on site, at remote holding locations, in transit from suppliers, and targets based on demand on order. The solution monitors the location of raw material via real time and and order lead times triggers the materials personnel to take corrective action on a real time basis. fluctuation This system allows the company to keep their inventories within a min/max √ Best in Class companies range, while providing centralized visibility of our raw material supply. are 1.6X times more likely to have a cross- Results: functional S&OP team • The company has seen a decline in raw material working capital that was once tied up in inventory √ Best in Class companies • The company has reduced cycle and lead times built into the planning are 1.4X times more schedule based on a more realistic evaluation of the formerly agreed lead likely to be have a cross- times functional product development team • The company has reduced back-up transport costs capability • The company has improved service levels, leading to better supplier relationships Competitive Assessment The aggregated performance of surveyed companies determined whether they ranked as Best-in-Class, Industry Average, or Laggard. In addition to having common performance levels, each class also shared characteristics in four key categories: (1) process (the processes that are set up for managing market events); (2) organization (organization setup and collaboration for managing market events); (3) performance measurement (the ability of the organization to measure the benefits of technology deployment and use the results to manage market events further); (4) technology (selection of appropriate tools and intelligent deployment of those tools). These characteristics (identified in Table 3) serve as a guideline for best practices and correlate directly with Best-in-Class performance across the key metrics. © 2007 Aberdeen Group, Inc. Telephone: 617 723 7890 www.aberdeen.com
  • 10. The Responsive Supply Chain Page 10 Table 3: Competitive Framework Laggards Average Best-in-Class Ability to include promotions and other causal events (e.g. weather, natural disasters, competitor actions etc.) into demand forecasts 19% 27% 33% Ability to reduce the time from demand sensing to taking action through effective S&OP 28% 38% 43% Process Ability to make trade-off decisions to change the supply network (e.g. supplier changes, in/out sourcing) 28% 54% 62% Ability to manage inventory targets based on demand and order lead time fluctuation 38% 45% 71% Ability to make rapid product introduction decisions 21% 33% 43% Cross-functional S&OP team with participants from sales, finance, engineering, procurement, processing, warehouse, and transportation 34% 48% 52% Process ownership from a senior executive for the S&OP plan 39% 49% 76% Continuous improvement teams in the shop floor 43% 38% 62% Cross functional product development team capability - marketing, sales, engineering, etc. 50% 63% 71% Organization Collaborative participation of customers in the product design process 38% 44% 43% • POS replenishment systems – • POS replenishment systems – • POS replenishment systems – 14% 31% 48% • Predictive analytics and • Predictive analytics and • Predictive analytics and simulation – 10% simulation – 26% simulation – 29% • Demand signal repository – • Demand signal repository – • Demand signal repository – 18% 19% 38% • Supply chain network design – • Supply chain network design – • Supply chain network design – 17% 33% 43% Total landed cost based sourcing decisions 35% 37% 54% Product category level margin analysis while introducing new products Performance 31% 37% 43% Ability to measure cost to serve 7% 19% 38% Source: Aberdeen Group, July 2007 © 2007 Aberdeen Group, Inc. Telephone: 617 723 7890 www.aberdeen.com
  • 11. The Responsive Supply Chain Page 11 Demand Management Process Characteristics Best-in-Class companies have the processes in place to handle every Food Service Fast Facts dimension of demand management associated with managing market events. √ 91% of respondents Specifically, they are able to better manage promotions and demand shaping from the food/beverage activities as compared to Industry Average and Laggard performers. Best-in- sector are leveraging Class companies show a holistic advantage across all the demand supply chain network for management categories. responding to market events In contrast, among Laggard organizations, the ability to integrate promotions and other demand shaping activities into demand forecasts shows the √ 77% of respondents highest number of respondents (38%). Among these companies, the ability from the food/beverage sector do not have end- to include POS and syndicated data into demand forecasts further has the to-end track and trace lowest number of respondents (13%). While Laggards are focusing on capabilities for handling managing artificial events like promotions, they are neglecting forward recalls looking events, such as causal factors, point of sales analytics, and simulation. Causal forecasting is inherently more difficult to perform. Many companies √ 62% of respondents from the food/beverage still lack the capabilities and resources necessary to understand casual sector do not have the forecasting. capability to make total landed cost based Figure 1: Demand Management Process Characteristics decisions Ability to include causal events (e.g. 15% Laggards w eather, natural disasters, competitor 27% Average actions etc.) into demand forecasts 33% Best in Class Ability to include promotions and other 38% demand shaping activities into demand 47% forecasts 57% 13% Ability to include Point of Sale and 27% syndicated data into demand forecasts 43% 14% Ability to perform predictive analytics and 27% demand simulation Enterprise Quote 30% “Demand forecasting is extremely important to Constellation Wines 0% 10% 20% 30% 40% 50% 60% U.S since there is a long cycle for Source: Aberdeen Group, July 2007 producing wine. The grapes have to be grown, with some plantings taking four years to bear fruit. Our Inventory and Supply Network Management Process wineries need accurate forecast to Characteristics perform bottling runs and both Best-in-Class companies demonstrate significant differentiation with respect short and long-term forecasting.” to their ability to manage their inventory and their supply chain network - Manager, Demand Process, (Figure 2). Constellation Wines US , r © 2007 Aberdeen Group, Inc. Telephone: 617 723 7890 www.aberdeen.com
  • 12. The Responsive Supply Chain Page 12 Figure 2: Inventory and Supply Network Management Process Characteristics Manage inventory targets based on demand 26% Enterprise Quote 45% “The software that we use for and order lead times fluctuation 71% forecasting has in-built capability Make trade-off decisions to change the 36% to consider causal events. supply netw ork (e.g. supplier changes, in/out 54% However, we don’t use it due to sourcing etc.) 62% the lack of experience in using it Reduce the time from demand sensing to and the lack of the data that the 32% module requires.” taking action through effective Sales and 38% Operations planning (S&OP) 43% - Manager at a large consumer 25% electronics company Make rapid product introduction decisions 33% 43% Segment the supply chain based on key 27% 29% product-customer characteristics 50% Best in Class Average Laggards 0% 10% 20% 30% 40% 50% 60% 70% 80% Source: Aberdeen Group, July 2007 Best-in-Class companies are: • Twice as likely as all other performers to be able to manage inventory targets based on demand and order lead times fluctuation • 1.5 times more likely than all other companies to be able to segment the supply chain based on key product-customer characteristics. The Best-in-Class are optimizing their investment in inventory, production, procurement, and distribution assets. As a result, these leaders are able to analyze their inventory network (as well as policies), add inventory where there are opportunities for winning additional market share, and reduce inventory where it is not needed. Moreover, they are able to do this and respond rapidly when uncontrolled market events occur. Case Study: Leveraging Inventory and Supply Chain Network to Manage Market Events Company: Pernod S.A is a manufacturer and distributor of wine and spirits headquartered in Paris, France. Challenge: Pernod has four manufacturing plants to accommodate the global demand for Pernod brands. Each plant is dedicated to a specific range of products, with no opportunity for flexible sourcing, so accurate production planning that considers seasonal demand peaks is important. The production constraints that impact planning are similar to those found in most food and beverage plants worldwide. The following constraints are a reflection of events that can occur in the marketplace: • Alternate routes for specific products, with route preferences by item • Labor availability © 2007 Aberdeen Group, Inc. Telephone: 617 723 7890 www.aberdeen.com
  • 13. The Responsive Supply Chain Page 13 Case Study: Leveraging Inventory and Supply Chain Network to Manage Market Events • Minimum economic batch quantities • Sourcing restrictions Solution: Pernod implemented a best of breed APS suite for demand, inventory, and replenishment planning. In addition, they implemented a manufacturing planning solution for capacity planning (at the product family level – to facilitate constrained S&OP) and also for scheduling (at the SKU level). This resulted in a solution that can manage the above constraints. Results: The company has seen reduction in finished goods inventories by 60% (10 Million Euro) while improving customer service to 99.5%. Organizational Capabilities Best-in-Class companies are showing significant differentiation with respect to their organizational capabilities. Figure 3: Organizational Capabilities Senior executive 46% 49% ow ns the S&OP plan 76% Cross functional 43% product 63% development team 71% Continous 43% improvement teams 39% in the shop floor 62% Cross-functional 25% 48% S&OP team 52% 0% 10% 20% 30% 40% 50% 60% 70% 80% Best in Class Average Laggards Source: Aberdeen Group, July 2007 Enterprise Quote “The biggest area of Best-in-Class companies are 1.5 times more likely than all other companies improvement for traceability in to have a process owner for the S&OP plan. This implies a strong process the food supply chain is at the capability to not only develop the S&OP plan but also to execute it. This handoff between the grower and ensures that market events that occur while the S&OP plan is being the packager. When we receive generated are given adequate consideration and its impact is being analyzed the ingredients from the within the S&OP process. packager we receive a lot code for that packager but we don’t Best-in-Class companies are 1.5 times as likely as all other companies to know which growers the have continuous improvement teams on the shop floor. Market events packager has purchased from.” manifest themselves on the production shop floor in terms of outages, recalls, and disasters. This implies a strong end-to-end focus on managing - The Vice President of Quality Assurance at a mid-size food market events from the shop floor to the top floor. seasoning manufacturer © 2007 Aberdeen Group, Inc. Telephone: 617 723 7890 www.aberdeen.com
  • 14. The Responsive Supply Chain Page 14 Performance Characteristics for Managing Market Events One of the critical enablers for managing market events is the ability to measure the critical metrics associated like product margin erosion, cost to serve, and total landed cost. When uncontrolled market events arise, unless there are automated and repeatable processes to measure metrics, it becomes difficult to measure the impact of the ad-hoc firefighting that occurs to mitigate the impact of the events. Best-in-Class companies are 1 to 1.5 times more likely to measure the key metrics as compared to all other companies. Aberdeen Insights – Product Track and Trace Food and beverage, chemical, and pharmaceuticals manufacturers and distributors face intensifying regulatory demands for product and ingredient traceability. Avian flu, drug recalls, food contamination, and E-coli scares are turning lot-level end-to-end supply chain traceability from a futuristic dream into a business necessity. Traceability is becoming increasingly important to protect brand equity and reduce the cost of recalls, root out gray market and counterfeit product, decrease product spoilage, and improve consumer safety. Many companies have internal traceability capabilities (albeit often highly manual processes) and one-up/one-down visibility to product flow. In fact, traceability is the second-most implemented technology reported by participants, with 48% of companies report making product/batch traceability technology investments. However, only 16% of companies indicate that they have an end-end data and process visibility across their supply chains. © 2007 Aberdeen Group, Inc. Telephone: 617 723 7890 www.aberdeen.com
  • 15. The Responsive Supply Chain Page 15 Chapter Three: Required Actions Whether a company is trying to move its performance in managing market Fast Facts events from “Laggard” to “Industry Average,” or “Industry Average” to “Best-in-Class,” the following actions will help spur the necessary √ Only 33% of Best-in- performance improvements: Class companies have the ability to include causal events into their Laggard Steps to Success demand forecasts • Ensure that a process owner is identified and the key stakeholders who report √ 71% of Best-in-Class up to the process owner are identified. Seventy-six percent (76%) of Best- companies have the in-Class companies have a process owner in charge of their S&OP ability to manage process as compared to 46% of Laggard companies. inventory targets based on demand and order • Invest in POS forecasting and replenishment management capabilities. Forty- lead times fluctuations three percent (43%) of Best-in-Class companies have the ability to √ 71% of Best-in-Class include POS and syndicated data into demand forecasts as compared to companies have cross 13% of Laggard companies. functional product • Invest in a supply chain planning and execution capabilities (for e.g., supply development team chain network design and distributed order management solution). capability with inputs Sixty-two percent (62%) of Best-in-Class companies have the ability to from marketing, sales, engineering , etc. make trade-off decisions to change the supply network (e.g. supplier changes, in/out sourcing) versus 36% of Laggard companies. Industry Average Steps to Success • Invest in inventory optimization capabilities. Seventy-one percent (71%) of Best-in-Class companies have the ability to manage inventory targets based on demand and order lead time fluctuation as compared to 45% of Average companies. • Develop customer level forecasting capabilities to enable the prioritization of customers and product segments so that when market events occur, high priority segments can be addressed first. Fifty percent (50%) of Best-in-Class companies have the ability to segment the supply chain based on key product-customer characteristics as compared to 29% of Average Companies. • Recognize the need for end-to-end supply chain traceability and flexibility to manage market events and ensure that the shop floor processes are continuously monitored and improved. Sixty-two percent (62%) of Best- in-Class companies have continuous improvement teams in the shop floor as compared to 41% of Average companies Best-in-Class Steps to Success • Seventy percent (70%) of Best-in-Class companies lack predictive analytics and demand simulation capabilities. These companies are unable to model risk downside scenarios dealing with spikes in customer demand. These © 2007 Aberdeen Group, Inc. Telephone: 617 723 7890 www.aberdeen.com
  • 16. The Responsive Supply Chain Page 16 companies need to invest in this capability for better management of market demands. • Fifty-seven percent (57%) of Best-in-Class companies are unable to make rapid product introduction decisions. This hampers their ability to deal with product obsoleteness scenarios in being able to phase out old products and phase in new products. • Only 33% of Best-in-Class companies are able to include causal events (e.g. weather, natural disasters, competitor actions etc) in demand forecasts. This is an extremely important capability to have in order to be able to proactively plan for market events and ensure that the right infrastructure is in place to address the negative effects of these events. Aberdeen Insights – Key Takeways 92% of companies indicate that they are focusing on at least one of the following key assets: inventory, supply chain network, and product. To improve responsiveness to market events, Best-in-Class companies are focusing on holistic approaches by leveraging their key assets like inventory, product, and supply chain networks. They do not focus on piece-meal approaches, and thus are able to: • Adjust inventory policies rapidly in response to demand spikes, product recalls and contamination issues • Swiftly shift to alternate supply chain networks when faced with regional disasters, logistics costs increases, and other supply network related issues • Rapidly implement product changes and introduce new products when faced with customer affinity changes © 2007 Aberdeen Group, Inc. Telephone: 617 723 7890 www.aberdeen.com
  • 17. The Responsive Supply Chain Page 17 Appendix A: Research Methodology Between June and July 2007, Aberdeen Group examined the use of processes and technologies used for managing market events that leverage supply chain assets. Over 140 companies participated in this survey. Responding executives completed an online survey that included questions designed to determine the following: • What are the key drivers for companies to focus on managing market events? • What are the strategic actions that companies are taking with respect to managing those key drivers? • What are the process capabilities that Best-in-Class companies have invested in? • What are the process, technology, organization, and data related maturity levels of the Best-in-Class companies? Aberdeen supplemented this online survey effort with telephone interviews with select survey respondents, gathering additional information on their strategies, experiences, and results. The study aimed to identify emerging best practices for market responsiveness in different industries and to provide a framework by which readers could assess their own management capabilities. Responding enterprises included the following: • Functional area: The research sample included respondents with the following functional areas of responsibility: finance (6%); information technology (14%); logistics/supply chain (43%); manufacturing (4%); sales (5%); marketing (4%); procurement (12%); Business Process Management (8%); others (6%) • Role in Organization: The research sample included respondents with the following roles: Senior management (including CEO, COO, President), CIO, CFO (14%); Vice President (12%); Director (25%); Manager (25%); Staff/Consultant (22%) • Industry: The research sample included respondents exclusively from different industry segments: • Apparel/Footwear/Accessories (11%) • Consumer durable goods (16%) • Consumer electronics (11%) • CPG (23%) • Food/Beverage (13%) • Other related industries (45%) © 2007 Aberdeen Group, Inc. Telephone: 617 723 7890 www.aberdeen.com
  • 18. The Responsive Supply Chain Page 18 • Geography: The majority of respondents were from North America (55%). Remaining respondents were from Europe (15%), Asia and Middle East (10%), and Central America (20%). • Company size: About 40% of respondents were from large enterprises (annual revenues above US$1 billion); 35% were from mid-size enterprises (annual revenues between $50 million and $1 billion); and 25% of respondents were from small businesses (annual revenues of $50 million or less). Please note that the respondents were asked to select all the choices that apply. Solution providers recognized as sponsors of this report were solicited after the fact and had no substantive influence on the direction of the “The Responsive Supply Chain: Managing Market Events in the Consumer Goods Industry” Benchmark Report. Their sponsorship has made it possible for Aberdeen Group to make these findings available to readers at no charge. Table 4: The PACE Framework PACE Key Aberdeen applies a methodology to benchmark research that evaluates the business pressures, actions, capabilities, and enablers (PACE) that indicate corporate behavior in specific business processes. These terms are defined as follows: Pressures — external forces that impact an organization’s market position, competitiveness, or business operations (e.g., economic, political and regulatory, technology, changing customer preferences, competitive) Actions — the strategic approaches that an organization takes in response to industry pressures (e.g., align the corporate business model to leverage industry opportunities, such as product/service strategy, target markets, financial strategy, go-to-market, and sales strategy) Capabilities — the business process competencies required to execute corporate strategy (e.g., skilled people, brand, market positioning, viable products/services, ecosystem partners, financing) Enablers — the key functionality of technology solutions required to support the organization’s enabling business practices (e.g., development platform, applications, network connectivity, user interface, training and support, partner interfaces, data cleansing, and management) Source: Aberdeen Group, July 2007 © 2007 Aberdeen Group, Inc. Telephone: 617 723 7890 www.aberdeen.com
  • 19. The Responsive Supply Chain Page 19 Table 5: The Maturity Framework Maturity Framework Key The Aberdeen Maturity Framework defines enterprises as falling into one of the following three levels of practices and performance: Best-in-Class (20%) — Market event practices that are the best currently being employed and significantly superior to the industry norm, and result in the top industry performance. Industry norm (50%) — Market event practices that represent the average or norm, and result in average industry performance. Laggards (30%) — Market event practices that are significantly behind the average of the industry, and result in below average performance In the following categories: Process — What is the scope of process standardization? What is the efficiency and effectiveness of this process? Organization — How is your company currently organized to manage and optimize this particular process? Knowledge — What visibility do you have into key data and intelligence required to manage this process? Technology — What level of automation have you used to support this process? How is this automation integrated and aligned? Performance — What do you measure? How frequently? What’s your actual performance? Source: Aberdeen Group, July 2007 Table 6: The Relationship Between PACE and the Competitive Framework PACE and the Competitive Framework – How They Interact Aberdeen research indicates that companies that identify the most impactful pressures and take the most transformational and effective actions are most likely to achieve superior performance. The level of competitive performance that a company achieves is strongly determined by the PACE choices that they make and how well they execute. Source: Aberdeen Group, July 2007 © 2007 Aberdeen Group, Inc. Telephone: 617 723 7890 www.aberdeen.com
  • 20. The Responsive Supply Chain Page 20 Appendix B: Related Aberdeen Research Related Aberdeen research that forms a companion or reference to this report includes: • The On-Demand Tipping Point in Supply Chain Report (March 2006) • The Lean Benchmark Report: Closing the Reality Gap (March 2006) • Global Supply Chain Benchmark Report (June 2006) • Technology Strategies for Integrated Business Planning (July 2006) • Technology Strategies for Inventory Management (September 2006) • The Transportation Management Benchmark Report (September 2006) • The Supply Chain Visibility Roadmap (November 2006) • The Extended Warehouse Benchmark (December 2006) • Demand Management in Consumer Industries (December 2006) • Globalization: The Turning Point for Packaged Supply Chain Software in Automotive, Aerospace and Defense Industries (January 2007) • The Supply Chain Innovators Technology Footprint 2007 (April 2007) • Supply Chain Cost-Cutting Strategies: How Top Process Industry Performers Take Radically Different Actions (March 2007) • Driving Sales and Top Line Revenue Requirements through Executive S&OP (April 2007) Information on these and other Aberdeen publications can be found at www.aberdeen.com. Author(s): Nari Viswanathan, Research Director, Supply Chain and Logistics, Aberdeen Group (nari.viswanathan@aberdeen.com) Jeanette Keene, Research Associate, Retail, Aberdeen Group Founded in 1988, Aberdeen Group is the technology- driven research destination of choice for the global business executive. Aberdeen Group has over 100,000 research members in over 36 countries around the world that both participate in and direct the most comprehensive technology-driven value chain research in the market. Through its continued fact-based research, benchmarking, and actionable analysis, Aberdeen Group offers global business and technology executives a unique mix of actionable research, KPIs, tools, and services. This document is the result of research performed by Aberdeen Group. Aberdeen Group believes its findings are objective and represent the best analysis available at the time of publication. Unless otherwise noted, the entire contents of this publication are copyrighted by Aberdeen Group, Inc. and may not be reproduced, stored in a retrieval system, or transmitted in any form or by any means without prior written consent by Aberdeen Group, Inc. © 2007 Aberdeen Group, Inc. Telephone: 617 723 7890 www.aberdeen.com
  • 21. The Responsive Supply Chain Page 21 Featured Underwriters This research report was made possible, in part, with the financial support of our under-writers. These individuals and organizations share Aberdeen’s vision of bringing fact based research to corporations worldwide at little or no cost. Underwriters have no editorial or research rights and the facts and analysis of this report remain an exclusive production and product of Aberdeen Group. As Hitachi, Ltd.'s (NYSE: HIT) global consulting company, Hitachi Consulting is a recognized leader in delivering proven business and IT solutions to Global 2000 companies. With a balanced view of strategy, people, process and technology, we work with companies to understand their unique business needs, and to develop and implement practical business strategies and technology solutions. Hitachi Consulting's client base includes nearly 25 percent of the Global 100 and many leading mid-market companies. From business strategy development through application deployment, we help clients quickly realize measurable business value and achieve sustainable ROI. Hitachi Consulting – Inspiring your next success!® For more information about Hitachi Consulting: 2001 Bryan Street, Suite 3600, Dallas, TX 75201 (877)664-0010 www.hitachiconsulting.com or info@hitachiconsulting.com Lawson Software provides software and service solutions to 4,000 customers in manufacturing, distribution, maintenance and service sector industries across 40 countries. Lawson's solutions include Enterprise Performance Management, Supply Chain Management, Enterprise Resource Planning, Customer Relationship Management, Manufacturing Resource Planning, Enterprise Asset Management and industry-tailored applications. Lawson solutions assist customers in simplifying their businesses or organizations by helping them streamline processes, reduce costs and enhance business or operational performance. Lawson is headquartered in St. Paul, Minn., and has offices around the world. For more information about Lawson Software: 380 St. Peter Street, St. Paul, MN 55102 (651)767-7000 www.lawson.com or caroline.long@uk.lawson.com © 2007 Aberdeen Group, Inc. Telephone: 617 723 7890 www.aberdeen.com
  • 22. The Responsive Supply Chain Page 22 Logility Voyager Solutions™ is a complete supply chain management solution that features powerful performance monitoring capabilities that give consumer goods companies a global view of supply chain activities, support a demand-driven supply network; accelerate new product introductions, streamline sales and operations planning, boost perfect orders; reduce transportation costs and enable better-informed decisions that impact the top and bottom line. With Logility, consumer goods companies get the right products to the right place at the right time with the right cost. Readers from Consumer Goods Technology magazine have consistently given Logility top rankings in the annual Reader’s Choice Awards for Supply Chain Planning, Supply Chain Execution, Transportation Management and Customer Experience. For more information about Logility, visit www.logility.com. For more information about Logility: 470 East Paces Ferry Road, Atlanta, GA 30305 (404)261-9777 www.logility.com or mduke@logility.com © 2007 Aberdeen Group, Inc. Telephone: 617 723 7890 www.aberdeen.com